The U.S. housing market is slowing down at a fast rate. The destructive combination of record appreciation in home prices and spiking rapidly  mortgage rates has brought the housing boom to an end. It appears as though the country is staring down the sharpest decline in housing "activity" since 2006.

High mortgage rates can deter people from buying, yet what really determines how the real estate market is affected is the impact on demand and affordability. Today's median income is around 30% of the median home price. In 1980, when interest rates were as high as 18%,  the median income was around 45% of the median home price.  The lower the percentage of income as it relates to the cost of housing, the less affordable housing is. 

The Federal Reserve usually lowers interest rates during a recession to help make the cost of borrowing more affordable and spur more economic activity, particularly within the housing market. Instead, the Fed has aggressively raised rates to supposedly  combat inflation. However, the Fed seems to be losing the battle against inflation as we see continued increase in energy, gas, and food costs. All of which are factors indicating a recession is coming. 

How can you prepare for the next recession and come out safely on the other side? Personal Financial expert, Dave Ramsey, has a plan that seems simple, but has proven to work: 

• 1. Live on a budget, 
• 2. pay off debt, 
• 3. save for emergencies,
• 4. invest for retirement, and 
• 5. live and give like no one else.

When the stock market goes down, people tend to be tempted to sell their mutual funds and stocks at a loss and put the money into something safe to weather the storm. Ramsey instead recommends waiting and riding out the storm. According to Ramsey, “Stocks rise and fall all the time. Even if you’ve seen a loss in your investments, you’ll only feel that loss if you take the money out. So don’t pull your money out right now. Keep your investments where they are, and wait for the upswing to happen.” Ramsey further explains, “Stocks are basically on a huge clearance sale right now. If you keep investing, you’ll be buying stocks at crazy low prices.” Therefore, it is reasonable to conclude that when the market picks back up, the investor will see the big returns roll in from the purchase of “clearance” stocks.

Paying off any credit card debt is a must if a recession is looming. Matt Schultz, chief analyst at Lending Tree states, “Job number one for anyone with a credit card is to pay off their balances as soon as possible.” Schulz further concludes that this is even more important when a recession is on its way and interest rates are rapidly rising. 

Putting money into savings while you can is also extremely important to minimize the collateral damage of a recession. Mark Hamrick, senior economic analyst for Bankrate.com, recommends saving while you have extra money, because a recession can drastically change your circumstances. Hamrick states, “You don’t want to have to resort to debt if you lose your job or because your wages aren’t keeping up with historically high inflation.” Having an emergency savings fund will help prevent you from accruing overwhelming debt during a financial recession. It is also important to consider that with the high inflation our country is experiencing, the standard advice of having three to six months’ worth of living expenses may not be enough.

Finally, living within your means is a no brainer. People who get hurt the worst in a recession are those who live beyond their means. Spending more money than you bring in is a recipe for a disaster. If you need to get a second job, to make sure your necessary expenses are covered, then do it. There are “We’re Hiring” signs all over the country. Employers today will certainly appreciate hard working individuals who show up with a good attitude. Even if you are living within your means, it may be a good time to get a second job to boost your income and savings. Now’s the time to prepare for the worst and hope for the best.